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7/27/2009
Rail News: Rail Industry Trends
STB orders UP to provide Oklahoma utility rate reparations, reductions
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Last week, the Surface Transportation Board (STB) issued a decision that requires Union Pacific Railroad to provide Oklahoma Gas & Electric Co. (OG&E) an estimated $100 million in rate “reparations” and reductions over the next decade.
The utility, which serves more than 750,000 customers in Oklahoma and western Arkansas, has contracted UP to haul about 6 million tons of coal annually from Wyoming's southern Powder River Basin to a power plant in Fort Gibson, Okla. However, after the latest contract expired on Dec. 31, 2008, UP and OG&E could not agree on a new contractual rate.
OG&E asked UP for common-carrier rates, which the utility began paying in January. The utility then challenged the new rates in a complaint with the STB.
Both OG&E and UP agree the power plant is captive to UP and that the common-carrier rates shouldn’t exceed 180 percent of the variable costs of providing transportation. But the STB needed to determine how to calculate the 180 percent revenue-to-variable cost ratio.
The board ruled that the amount of relief owed to OG&E for 2009’s first two quarters ranged from $1.66 to $1.91 per ton in shipper-supplied rail cars, depending on the mine origin. The STB also ordered UP to set common-carrier rates for the next 10 years at 180 percent of variable-costs levels.
The relief to OG&E likely will exceed $10 million annually for the next 10 years based on volumes of 6 million tons per year, the STB said.
The utility, which serves more than 750,000 customers in Oklahoma and western Arkansas, has contracted UP to haul about 6 million tons of coal annually from Wyoming's southern Powder River Basin to a power plant in Fort Gibson, Okla. However, after the latest contract expired on Dec. 31, 2008, UP and OG&E could not agree on a new contractual rate.
OG&E asked UP for common-carrier rates, which the utility began paying in January. The utility then challenged the new rates in a complaint with the STB.
Both OG&E and UP agree the power plant is captive to UP and that the common-carrier rates shouldn’t exceed 180 percent of the variable costs of providing transportation. But the STB needed to determine how to calculate the 180 percent revenue-to-variable cost ratio.
The board ruled that the amount of relief owed to OG&E for 2009’s first two quarters ranged from $1.66 to $1.91 per ton in shipper-supplied rail cars, depending on the mine origin. The STB also ordered UP to set common-carrier rates for the next 10 years at 180 percent of variable-costs levels.
The relief to OG&E likely will exceed $10 million annually for the next 10 years based on volumes of 6 million tons per year, the STB said.
